[GNC] Getting My Account To Trial Balance

[DaveC49]

Adrien,

The main function of the trial balance is to ensure the accounts are
numerically correct before any adjustments to the accounts are made before
producing the final financial statements. It should be just a straight
listing of the balance (credit or debit) of all accounts in the chart of
accounts and the sum of all credits should equal the sum of all debits. 

This is usually the starting point for adjusting the accounts.  Closing the
books is not just simply a transfer of the income and expenses for the
accounting period to equity. Prior to this, the accounts may require
specific adjustments which reflect the nature of the business and the
particularly the taxation rules which apply to it. Even though GnuCash is a
perpetual system it will require these adjustments to be made. This is also
the function of what was a 13 month financial year in some accounting
systems, in which the 13th virtual month was used to record and process
these adjustments without affecting the data for the 12 actual months,  but
was included in the current accounting period.

Adjustments are normally made for things which affect more than a single
accounting period like prepaid expenses, depreciation of non-current assets,
accrued expenses, accrued revenues and unearned revenues and the differences
between accounts recorded on a cash (when the money is actually received or
paid) or recorded on an accrual basis (when the income is earned (e.g. when
a report is produced in a consulting business) or expenditure is incurred in
an accounting sense in accordance with the matching principle) so that the
correct income and expenses associated with earning it are recorded in the
correct accounting period, mainly for taxation complliance. 

Not so important in personal accounting and usually many small businesses
below a specified income/turnover level where cash accounting is allowed to
be used for taxtaion purposes, but certainly significant for larger
businesses which must use accrual accounting under taxation legislation. 

An example can be in something like manufacturing where you may purchase
materials is one period (i.e. outlay the money) but you actually incur the
expenditure in another accounting period (for example when you make the
product) but the associated revenue may even be produced in a third or
subsequent accounting period in which you sell the product.

David





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David Cousens
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